New CEO named at Sears as sales and profits slide

February 24, 2011

Sears Holdings named Lou D’Ambrosio its new CEO in conjunction with the release of fourth-quarter results that sales and profits decline, as a 2.5% same-store sales increase at Kmart was not enough to offset a 4.5% comp decline at Sear’s flagship stores.

Total company sales for the fourth quarter were $13.1 billion, or $103 million less than the prior year, while full-year sales decreased by $717 million to $43.3 billion. As a result of the sales decline, profits dropped to $374 million, or $3.43 per share in the fourth quarter of 2010 compared with $430 million or $3.74 the prior year.

In a letter to shareholders, Sears Holdings chairman Eddie Lambert said 2010 was another challenging year for the company, financial results were at unacceptable levels, and it was working hard to drive better performance in the short and long term.

“The company generates significant amounts of cash, and we have the ability and flexibility to invest that cash strategically,” Lambert said. “We will continue to make long-term investments in key areas that may adversely impact short-term results when we believe they will generate attractive long-term returns. In particular, we have significantly grown our Shop Your Way Rewards program, improved our online and mobile platforms, and re-examined our overall technology infrastructure. We believe these investments are an important part of transforming Sears Holdings into a truly integrated retail company, focusing on customers first.”

As the company looks to execute it growth strategies it will do so under the leadership of D’Ambrosio who fills a position occupied by Bruce Johnson who served as interim CEO for the past three years. Lampert did not elaborate on why it took so long to find a CEO but did explain the rational for hiring a technology oriented executive with experience at IBM and Avaya who also happens to be a Harvard MBA.

“From the beginning of our CEO search, we were determined to find a leader with information and technology experience who could catalyze the transformation of our portfolio of businesses in the context of the evolution of the retail industry that is occurring more broadly,” Lampert wrote in his chairman’s letter that accompanied the release of fourth quarter results. “Having worked closely with Lou and observing his business acumen, compelling leadership style, performance orientation and customer first approach, I am confident that Lou is the right person to lead and transform Sears Holdings.”

To do so, Kmart and Sears need to grow sales, as the store experienced mixed results during the fourth quarter. The Kmart increase in comparable-store sales was driven by gains in most categories, with notable increases in the apparel, footwear, jewelry, sporting goods and toys categories, partially offset by declines in the food and consumables and pharmacy categories. Declines in sales at Sears domestic stores were primarily driven by the hardlines categories, as well as apparel. Over half of the total decline in both periods occurred in consumer electronics. In contrast, Sears' footwear, jewelry, and automotive categories generated comparable store sales growth.

Sears Holdings ended the year with slightly more than 4,000 stores, consisting of 1,307 Kmart stores, 894 full line Sears stores and 1,354 specialty stores in the United States and 483 units in Canada consisting of 122 full line stores and 361 specialty stores.

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